Compensation Paid to Seller for Waiving Off Its Absolute Right from Land to be Treated as Cost of Improvement | ITAT

Case Details: Nareshbhai Ishwardas Patel v. ITO - [2023] 155 taxmann.com 141 (Ahmedabad-Trib.)

Judiciary and Counsel Details

• • Waseem Ahmed, Accountant Member & T.R. Senthil Kumar, Judicial Member
  • R.B. Tank, A.R. for the Applicant.
  • Atul Pandey, Sr. D.R. for the Respondent.

Facts of the Case

The assessee and the co-owner sold 5% of the land, and the remaining 95% of land was transferred to the partnership firm as the partner’s capital contribution at a certain amount. Assessee, against the sale of land and transfer of land to the partnership firm, claimed a certain amount incurred as cost of improvement, including compensation paid to a person for waiving off its absolute right from land in favour of the assessee.

Assessing Officer (AO) noted that the assessee failed to file a copy of the ITR of the third party and failed to demonstrate that said party had offered income on account of compensation paid by the assessee. Thus, he disallowed the claim of index cost of improvement on account of compensation and stamp duty charges.

The matter reached before the Ahmedabad Tribunal.

ITAT Held

The Tribunal held that it was noted that the lower authority failed to point out any infirmity in evidence made available by the assessee regarding payment of compensation. The assessee’s claim was rejected merely because such documents did not contain details of payment and based on the fact that the seller party had not offered income on receipt of such compensation.

Further, revenue had accepted an identical claim of cost of improvement on account of compensation made by the co-owner, i.e., the brother of the assessee, in the assessment framed under section 143(3). Thus, the claim of the cost of an improvement on account of compensation paid by the assessee was to be allowed.

List of Cases Reviewed

• • State of Rajasthan v. Gopikishan Sen AIR 1992 SC 1754 (para 11.1)
  • DLF Universal Ltd. v. Dy. CIT [2010] 36 SOT 1 (Trib. – Delhi)(SB) (para 11.2) followed.
  • CIT v. Carlton Hotel (P.) Ltd. [2017] 88 taxmann.com 257/399 ITR 611 (All.) (para 11.3) distinguished.
  • M. Ambalal Desai v. ITO [IT Appeal No. 1870 (AHD.) of 2015, dated 7-1-2021] (para 18.3) followed.

List of Cases Referred to

• • State of Rajasthan v. Gopikishan Sen AIR 1992 SC 1754 (para 11.1)
  • DLF Universal Ltd. v. Dy. CIT [2010] 36 SOT 1 (Delhi) (SB) (para 11.2)
  • CIT v. Carlton Hotel (P.) Ltd. [2017] 88 taxmann.com 257/299 ITR 611 (All.) (para 11.3)
  • M. Ambalal Desai v. ITO [IT Appeal No. 1870 (AHD.) of 2015, dated 7-1-2021] (para 18.3) followed.